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High China Dairy Inventories to Stave Off Dairy Markets Recovery

GLOBAL - Any hopes of a dairy market recovery from consecutive positive Fonterra auction results are false, according to US dairy analysts with an eye on Chinese production.

China’s milk production, much like elsewhere, has been considerably higher this year, with surpluses being diverted into a growing powder inventory.

For this reason, the US Dairy Export Council’s analysts have reiterated the prognosis of other sources for no dairy market price rebound until mid-way through 2016.

They suggest China could be sitting on 300-400,000 tons of powder.

This insight comes from USDEC’s Marc Beck, who is expecting US dairy exports to decline for the first time since 2009.

He this week described China’s strong demand in 2013/14 as a “buying bubble” representing “false demand” and prices are now being hurt by a net supply increase of 13 million tons of milk.

Price recovery hopes were ignited this week by a second positive result in Tuesday’s Global Dairy Trade, seeing a huge 30 per cent lift in Butter Milk Powder, as well as further increases in Skim and Whole Milk Powder.

Dairy Australia said forward SMP and WMP prices suggest bidders are not expecting any dramatic recovery in the coming months. The levy board also noted that volumes were 37 per cent down in year on year terms.

With world prices “well below” those in the US, movement of US butter and cheese has slowed.

This is according to Professor Bob Cropp, University of Wisconsin-Madison, who said “rather optimistic” futures markets at the mid-way point in August were more likely to drop than lift.

He wrote that milk production must drop to clear the overhanging supply of dairy products.

Yesterday’s latest dairy products dashboard from the European Commission showed EU summer milk production was well ahead of prior years.

Latest world quotations showed Europe had the most expensive milk powders but US Cheese and Butter were ahead of both Oceania and the EU.

Michael PriestleyNews Team - Editor

Mainly production and market stories on ruminants sector. Works closely with sustainability consultants at FAI Farms